Header Menu

US-China Trade Paradoxically Explodes Amid Trump Trade War

Washington and Beijing may be locked in an ongoing trade war, but you wouldn't know it looking at America's busiest ports, according to Bloomberg's Shawn Donnan.

A few days before Christmas, the container ship “SM Shanghai” was steaming toward California’s Port of Long Beach. Just ahead and coming to the end of an 11-day journey from China, the “Ever Lucent” was headed for the nearby Port of Los Angeles, where the “Thomas Jefferson” was preparing to sail in the opposite direction for Xiamen.

The global economy, in other words, was chugging along nicely on one of the world’s busiest sea lanes. Trade wars be damned. -Bloomberg

Donnan notes that "President Donald Trump’s assault on globalization has had a paradoxical effect on world trade flows," suggesting that retail and other industries are rushing to get ahead higher tariffs down the road - "particularly on U.S. imports from China."

"The warehouse and distribution centers are full in southern California," according to Port of Los Angeles spokesman Phillip Sanfield. "We’re experiencing some logistical issues at the San Pedro ports just because there’s so much cargo in play here."

Following a record 2017 when the Port of Los Angeles processed the equivalent of 9.3 million shipping containers, December has put the port back on track to report another record-breaking year in 2018 according to Sanfield. Meanwhile, traffic at the Port of Long Beach increased over 7.3% through November - which, like the Los Angeles port, would put it on record to surpass last year's record at 7.5 million containers.

That said, the explosion in trade could be interpreted as Trump's tariff war backfiring when it comes to reducing the US appetite for China-produced goods - as the the US imported more goods and services than ever in October based on value terms according to the latest data from the Commerce Department. That said, US exports also approached an all-time monthly record set in May.

Despite a September prediction by the World Trade Organization (WTO) that global trade growth would ease this year by 0.8 percent to 3.9 percent - still high by recent standards. For comparison, Bloomberg notes that international trade volumes in 2016 grew by just 1.8 percent.

"Many people want to shout that the sky is falling on trade because of these trade measures" imposed by the Trump administration, said WTO chief economist Robert Koopman. For now, however "we think 2018 is going to end up with a fairly solid year."

That said, there are less-than-rosy takeaways to the burgeoning trade; for starters, record volumes at West Coast ports indicates that Trump's trade war has done far more to reduce US exports to China than the other way around - which was kind of the point.

Increased traffic at the Port of Long Beach included a surge in empty containers being shipped back to Asia. In November alone the port saw more than 186,000 empty containers sent on that trip, 11 percent more than last year.

While U.S. retailers have stepped up purchases of Chinese products to avoid tariffs later on, “you’re seeing the opposite effect on the other side of the ocean,” said Mario Cordero, the port’s executive director. “Chinese businesses seem to be already looking to other countries for goods and raw materials, meaning there’s less demand for American exports and more empty containers.” -Bloomberg

Then there's the future. 2018's mad rush - especially if it is to get ahead of future tariff increases, could set the stage for a dismal 2019. This is a particular concern for the Port of Los Angeles, which expects a slowdown. "We’re probably going to see a softening of trade," said Sanfield.

Of course, Trump and China's Xi Jinping agreed to a December 1 truce, which included a 90-day delay on a $200 billion tariff increase on Chinese imports. The stopgap arrangement includes January talks and the postponement of tariff increases until at least March 1.

A U.S. delegation will head to China in the week of Jan. 7 to hold talks with Chinese officials, two people familiar with the matter said.

What comes after that is unclear, as the moratorium could easily be extended for another 90 days if the two sides make even faint progress in negotiations. For many retailers, such a move would extend the uncertainty -- and quite possibly their buying spree from China.

That for many means continuing the push to stock up on products from existing vendors in China rather than shifting supply chains that have taken years to establish, said Jonathan Gold, the National Retail Federation’s resident supply-chain expert. -Bloomberg

"Many are trying to find those alternative sources," said Gold. "The problem is it takes time. It’s not like a light switch. You can’t just switch vendors."